Haas Newsroom

Berkeley, October 29, 2003 – A ferocious new wave of
outsourcing of white-collar jobs is sweeping the United States,
according to a new study published by University of California,
Berkeley, researchers, who say the trend could leave as many
as 14 million service jobs in the United States vulnerable.

Study authors Ashok Deo Bardhan and Cynthia Kroll, both researchers
at the Fisher Center for Real Estate and Urban Economics housed
at UC Berkeley’s Haas School of Business, say that not
all of the at-risk jobs are likely to be lost. But, they note,
jobs remaining in the United States could be subject to pressures
to lower wages, and the jobs that leave may slow the nation’s
job growth or generate losses in related activities.

Jobs most vulnerable to the new wave of outsourcing, the
researchers say, include medical transcriptions services,
stock market research for financial firms, customer service
call centers, legal online database research, payroll and
other “back office” activities. Altogether, the
positions feature vulnerability-producing attributes such
as a lack of face-to-face customer service, work processes
that enable telecommuting and Internet work, high wage differentials
between countries, a high information content, low social
networking requirements, and low set-up costs.

Bardhan and Kroll say that the widely quoted Forrester Research
(an independent technology research company) report issued
in 2002 that 3.3 million jobs would be lost to outsourcing
by 2015 already seems conservative. They point to the rate
of outsourcing over the past few years to India – 25,000
to 30,000 jobs in June 2003 alone.

India, they say, is the leading destination for outsourcing
due to its population’s widespread use of English in
both education and business, institutional similarities with
the United States in its legal system, wide wage differentials
with the United States, and its large numbers of science and
engineering graduates.

Source: US wages are from US Bureau of Labor
Statistics, National Compensation Survey, July 2002; India
wages are from interviews, business literature search and
review of employment want ads by the authors.

Yet, other locations such as China, East Asia, Russia, Israel,
and Ireland also are increasingly popular and competitive
outsourcing destinations, the authors say. They cite tentative
evidence that shows the outsourcing of business process and
software jobs generated more than a million jobs in the '90s
and hundreds of thousands more since the turn of the century.

"Because white-collar work is so widely spread throughout
the United States, many different parts of the country may
feel the effects of this wave of outsourcing," says Kroll.

Areas that benefited over the past two decades from the migration
of “back office” work out of central cities could
now see a share of those jobs leave for other parts of the
world, warn Kroll and Bardhan. Major metropolitan areas are
not immune either, they say. San Francisco and San Jose as
well as expensive East Coast locations such as Boston and
New York City are vulnerable, according to the researchers,
both because of their high shares of occupations that can
be outsourced and because of their high cost of labor.

In terms of real estate markets, “outsourcing will
not empty out office buildings in the United States,"
says Kroll, "but it will certainly slow the rate at which
current vacancies are absorbed." Both “back office”
markets and high-tech centers are likely to feel the effects,
she says.

But all is not necessarily gloomy for the United States’
economy, the researchers say. For example, outsourcing of service jobs may prove more costly to the economy than the

This graph, based on Bureau of Labor Statistics data, shows how outsourcing of jobs is likely to vary by geographic area, and by job classification within those areas. (Source: Bardhan and Kroll)

earlier wave of manufacturing outsourcing, conclude Kroll
and Bardhan. This, they say, would be the case if the economy
does not generate enough technological growth to replace the
jobs lost with new ones and workers eventually find new work
in lower-wage occupations.

“On the other hand,” says Bardhan, “continuing
innovation and technological advances could allow the U.S.
and California economies to keep the 'cream' of new development
and higher-value-added jobs at home, while more routine activities
are outsourced.”

This was the pattern for high-tech manufacturing outsourcing
of California’s low-wage assembly jobs during a downturn
that brought productivity increases in its wake and a wide
range of opportunities in new service jobs, he said.

Kroll, Bardhan and Dwight Jaffee, Willis Booth Professor
of Banking, Finance, and Real Estate at the Haas School, are
the authors of a forthcoming book, Globalization and a
High-Tech Economy: California, the United States and Beyond,
published by Kluwer Academic Publishers.